July 10, 2013
Way back when, somewhere around the time when you entered the securities industry, you were asked to fill out, review, and/or sign an ominous looking document called the Uniform Application For Securities Industry Registration Or Transfer ("Form U4"). You may have saved a copy of that form. It may be turning brown and crumbling with age in the back of your desk drawer. When you filled out the Form U4, you may have even read the document - but chances are, at best, you read some of it; and, if you're being honest, you probably read virtually none of it as you rushed through the various "Yes" and "No" checkboxes.
All these years later, your old Form U4 has been sitting somewhere, ticking like a timebomb. If you listen - carefully - you may just about manage to hear it.
BrokeAndBroker U4 PSA
Consider this BrokeAndBroker article a public service announcement for the several hundred thousand of you men and women with Form U4s. If you wind up in some regulatory spat or nasty customer lawsuit, there are things on your Form U4 that may tie you up in knots, hamstring you beyond your ability to extricate yourself, and possibly gag you in ways that you never anticipated. So - join me in what may prove an uncomfortable trip down memory lane.
A Forgotten Signature
Depending on the age of your Form U4, you will find your signature somewhere around the hard copy page enumerated 15, right under Item 15A. You will see a line that says: "15A. INDIVIDUAL/APPLICANT'S ACKNOWLEDGEMENT AND CONSENT." If you can't find a copy, you can look at a current ONLINE BLANK VERSION.
So, now let's plow through the paragraphs immediately above your signature. NOTE: The actual Form U4 language is cited in full text and my comments are located under "SIDE BAR:"
1. I swear or affirm that I have read and understand the items and instructions on this form and that my answers (including attachments) are true and complete to the best of my knowledge. I understand that I am subject to administrative, civil or criminal penalties if I give false or misleading answers.
SIDE BAR: They ain't playin' games here! You have "sworn" or "affirmed" by your subsequent signature that you have both read and understood every damn thing on the Form U4. Fact is, many of you may well have read the instructions, questions, and contents of the Form U4 but I doubt that you all "understood" everything involved. The time to have asked questions was before your signed off.
Note that what you have sworn to included that you gave "true and complete" answers. If you were fudging stuff at the time and now you're in trouble, you will likely get hit with the double whammy:
Now, you might ask me, Bill, just exactly what constitutes a lie on the Form U4 because a few years ago I didn't understand that X needed to be disclosed or that I had been named in a lawsuit. If you read the Form U4 signature preamble paragraph #1 above carefully (and I urge you to do so), there's a crack left open in the window that provides that your responses on the Form U4 are held to the test of what you understood was "true and complete to the best of my knowledge." And when I say that's the merest of cracks in the window, I mean just that. There is a "good faith exception" available in the event that you answered the items on the Form U4 in a "true and complete" manner but that such, nonetheless, now turns out to have been false and incomplete. The saving grace is going to be your ability to prove that "at the time" you gave what now appear to be false and incomplete answers that you had responded to the best of your knowledge. One warning: It may not be enough to argue that you didn't know at the time. You may also be found wanting in the good faith department if you "should have known." Willfully blinding yourself to facts and circumstances will not likely allow you to crawl out the window.
- You lied; and
- You violated your sworn promise not to lie about the statement.
Finally, note that there are administrative, civil, and criminal penalties for lying on the Form U4. Once you've exhausted those three possibilities I don't think that there is much left -- so take this seriously!
2. I apply for registration with the jurisdictions and SROs indicated in Section 4(SRO REGISTRATION) and Section 5 (JURISDICTION REGISTRATION) as maybe amended from time to time and, in consideration of the jurisdictions and SROs receiving and considering my application, I submit to the authority of the jurisdictions and SROs and agree to comply with all provisions, conditions and covenants of the statutes, constitutions, certificates of incorporation, by-laws and rules and regulations of the jurisdictions and SROs as they are or may be adopted, or amended from time to time. I further agree to be subject to and comply with all requirements, rulings, orders, directives and decisions of, and penalties, prohibitions and limitations imposed by the jurisdictions and SROs, subject to right of appeal or review as provided by law.
SIDE BAR: When you submitted the Form U4, you agreed to "submit to the authority of the jurisdictions and SROs. . ." As in the rules and regulations of Wall Street. Also keep in mind that you agreed to be subject to and comply with the "penalties, prohibitions, and limitations" imposed upon you. As in fines, suspensions, bars, and the like.
3. I agree that neither the jurisdictions or SROs nor any person acting on their behalf shall be liable to me for action taken or omitted to be taken in official capacity or in the scope of employment, except as otherwise provided in the statutes, constitutions, certificates of incorporation, by-laws or the rules and regulations of the jurisdictions and SROs.
SIDE BAR: Now here's a section that whereby you are essentially waiving your right to hold the regulatory community liable for any misconduct - except if you have an express legal right or other legal entitlement to do so. Now that's a big "except." Of course the barrier set under law for successfully suing regulators is quite high and typically includes some form of "immunity" for a regulator (or its employees and agents). That "immunity" may be "absolute" or "qualified" depending on the circumstances. Still, a slim hope is better than none.
4. I authorize the jurisdictions, SROs, and the designated entity to give any information they may have concerning me to any employer or prospective employer, any federal, state or municipal agency, or any other SRO and I release the jurisdictions, SROs, and the designated entity, and any person acting on their behalf from any and all liability of whatever nature by reason of furnishing such information.
SIDE BAR: You have a regulatory history? You have a criminal history? You have a history of litigation? Maybe you weren't exactly planning on disclosing some embarrassing detail? Well, guess what: If you seek employment on Wall Street, there is a good chance that your prospective employer will have access to various databases from federal, state, and self regulators - whether that be directly via online access or indirectly via those regulators providing pertinent background as part of the pre-employment verification process. Moreover, that back-and-forth is covered by your explicit release of liability.
5. I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs indicated in Section 4 (SRO REGISTRATION) as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
SIDE BAR: Now here is one that they sort of snuck in there - and employers love this. As part of submitting your Form U4 you are forced to agree to arbitrate "any dispute, claim or controversy" that occurs between you and your firm, you and a customer, and any other covered individuals or entities. On top of that arm twisting that forces registered persons into mandatory intra-industry and customer arbitration, you are also compelled to agree that "any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction." So - next time you want to rage and fulminate against how unfair Wall Street is and where the hell do they get the right to force you into mandatory arbitration and when did you agree that an arbitration award could be rendered a state/federal court judgment - just take a gander at the above paragraph #5 of your Form U4.
6. For the purpose of complying with the laws relating to the offer or sale of securities or commodities or investment advisory activities, I irrevocably appoint the administrator of each jurisdiction indicated in Section 5 (JURISDICTION REGISTRATION) as may be amended from time to time, or such other person designated by law, and the successors in such office, my attorney upon whom maybe served any notice, process, pleading, subpoena or other document in any action or proceeding against me arising out of or in connection with the offer or sale of securities or commodities, or investment advisory activities or out of the violation or alleged violation of the laws of such jurisdictions. I consent that any such action or proceeding against me may be commenced in any court of competent jurisdiction and proper venue by service of process upon the appointee as if I were a resident of, and had been lawfully served with process in the jurisdiction. I request that a copy of any notice, process, pleading, subpoena or other document served hereunder be mailed to my current residential address as reflected in this form or any amendment thereto.
SIDE BAR: You know all those states in which you are registered? Guess what - you designated a legal representative in each state as your "attorney upon whom may be served any notice, process, pleading, subpoena or other document in any action or proceeding" against you in connection with securities, commodities, or investment advisory activities involving alleged violations of a given state's laws. On top of that lovely little back-door, you also agreed that the copy of such legal notices, pleadings, etc. may be mailed to your current residential address as disclosed on your Form U4. And if you somehow failed to amend your U4 to reflect your current address and the copy winds up in some postal black hole? Yeah, that's not gonna be good for you.
7. I consent that the service of any process, pleading, subpoena, or other document in any investigation or administrative proceeding conducted by the SEC, CFTC or a jurisdiction or in any civil action in which the SEC, CFTC or a jurisdiction are plaintiffs, or the notice of any investigation or proceeding by any SRO against the applicant, may be made by personal service or by regular, registered or certified mail or confirmed telegram to me at my most recent business or home address as reflected in this Form U4, or any amendment thereto, by leaving such documents or notice at such address, or by any other legally permissible means. I further stipulate and agree that any civil action or administrative proceeding instituted by the SEC, CFTC or a jurisdiction may be commenced by the service of process as described herein, and that service of an administrative subpoena shall be effected by such service, and that service as aforesaid shall be taken and held in all courts and administrative tribunals to be valid and binding as if personal service thereof had been made.
SIDE BAR: At some point in your Wall Street career, you may get served by a regulator with a complaint, subpoena, or other pleading/document attendant to an effort to compel your testimony or the production of documents - or to start a process whereby you may be censured, fined, suspended, and/or barred. In this Paragraph #7, you have consented to the service of such paperwork upon you by:
- Personal service;
- Regular, registered or certified mail or confirmed telegram to you at your most recent business or home address as reflected on your Form U4; and
- that such service may be effected by any legally permissible means.
Okay, just what the hell a "confirmed telegram" is in these days of Instant Messaging and email, I dunno but it's on the Form U4.
A word of warning. You know that clever legal advice you got from that moron at the office water cooler? You were told, between sips of water, that if you don't update your CRD files or Form U4 with a new address, that you can avoid all sorts of regulatory problems. Seemed like a great idea at the time; but for the fact that paragraph #7 is your consent to be served at your "most recent business or home address" as disclosed on your Form U4. Yup, they're going to serve you at that home address you moved from three years ago because you never updated that. Uh huh, they're going to serve you at the outdated business address on your Form U4 - that's the office where you told your manager to drop dead as you slammed the door behind you. Such service at those non-current addresses may well be "taken and held in all courts and administrative tribunals to be valid and binding as if personal service thereof had been made."
8. I authorize all my employers and any other person to furnish to any jurisdiction, SRO, designated entity, employer, prospective employer, or any agent acting on its behalf, any information they have, including without limitation my creditworthiness, character, ability, business activities, educational background, general reputation, history of my employment and, in the case of former employers, complete reasons for my termination. Moreover, I release each employer, former employer and each other person from any and all liability, of whatever nature, by reason of furnishing any of the above information, including that information reported on the Uniform Termination Notice for Securities Industry Registration (Form U5). I recognize that I may be the subject of an investigative consumer report and waive any requirement of notification with respect to any investigative consumer report ordered by any jurisdiction, SRO, designated entity, employer, or prospective employer. I understand that I have the right to request complete and accurate disclosure by the jurisdiction, SRO, designated entity, employer or prospective employer of the nature and scope of the requested investigative consumer report.
SIDE BAR: This is the killer that many registered person come to hate. Under Paragraph #8, you authorize your employers and others to furnish to a whole batch of entities and folks "any information they have, including without limitation," about your:
- business activities,
- educational background,
- general reputation,
- history of my employment and,
- in the case of former employers, complete reasons for your termination.
I'll bet that most of you never, ever realized that you had agreed to authorize such an extensive disclosure - but you did; it's all there in Paragraph #8. And that's not the worst of it. No, trust me on this one, it gets uglier.
Each person who you authorized to disclose the covered information, you released from "any and all liability, of whatever nature . . . " for their involvement in furnishing any of the covered information. For good measure, this paragraph pointedly admonishes that information reported on the Uniform Termination Notice for Securities Industry Registration ("Form U5") is covered under that release. So - you know when you're about to call me and ask if you can sue so-and-so because they sent someone your Form U5? Maybe you want to re-read this paragraph before I charge you.
9. I understand and certify that the representations in this form apply to all employers with whom I seek registration as indicated in Section 1 (GENERAL INFORMATION) or Section6 (REGISTRATION REQUESTS WITH AFFILIATED FIRMS) of this form. I agree to update this form by causing an amendment to be filed on a timely basis whenever changes occur to answers previously reported. Further, I represent that, to the extent any information previously submitted is not amended, the information provided in this form is currently accurate and complete.
SIDE BAR: Yeah, it's here to: You have agreed
to timely amend your Form U4 and that the information will always be "accurate and complete."
10. I authorize any employer or prospective employer to file electronically on my behalf any information required in this form or any amendment thereto; I certify that I have reviewed and approved the information to be submitted to any jurisdiction or SRO on this Form U4 Application; I agree that I will review and approve all disclosure information that will be filed electronically on my behalf; I further agree to waive any objection to the admissibility of the electronically filed records in any criminal, civil, or administrative proceeding.
Applicant or applicant's agent has typed applicant's name under this section to attest to the completeness and accuracy of this record. The applicant recognizes that this typed name constitutes, in every way, use or aspect, his or her legally binding signature.
Signature of Applicant
SIDE BAR: You may not have put the form in the mail and personally sent it to FINRA but, these days, the forms are electronically filed and once the initial or any amended filing is put into the regulatory pipeline, you have certified that you "reviewed and approved the information." As such, make damn sure that you have, in fact, reviewed what's being transmitted under your name. If it's not exactly the way you would put it or if you don't exactly understand what was asked, you sure as hell better start asking questions and getting things in writing. Note that your mere "typed name" constitutes your "legally binding signature." Yeah, I know, I've heard it all - I didn't sign it. I had my cousin sign it. Pretty clever? No -- not really.
Also read the companion piece "Veteran Wall Street Lawyer Bill Singer Dissects The FINRA AWC" (BrokeAndBroker, June 28, 2013).
Side Bar With Bill Singer